In John Buckingham v HMRC [2023] TC08782, the First Tier Tribunal (FTT) found that a Special Dividend paid as part of a merger was taxable partly as income and partly as capital. In making its decision, the FTT was highly critical of HMRC and noted that a statutory review decision was given out of time. 

  • Mr Buckingham held shares in the Dr Pepper Snapple Group (DPSG) which merged with another company using a special-purpose vehicle in 2018.
    • The merged company was known as Keurig Dr Pepper Inc (KDP).
    • Both DPSG and KDP were incorporated under Delaware law.
  • Prior to the merger, a ‘Special Dividend’ of $103.75 per share was paid to DPSG shareholders.
  • Mr Buckingham received £109,813. He included that amount on his 2018-19 tax return as capital, because the overall capital value of his shareholding was significantly less than it had been before the merger.
    • This return was submitted on 19 September 2019.
  • Using information of the correct capital/income split received under the Foreign Account Tax Compliance Act (FATCA), HMRC opened an enquiry under s.9A TMA 1970 on 2 October 2020.
    • HMRC concluded that $29.50 of the Special Dividend was taxable as a distribution under UK law and that the balance of $74.25 was capital.
    • This conclusion was in agreement with documentation published at the time of the Special Dividend, which gave the same income/capital split. 
    • A Closure notice was issued by HMRC, increasing Mr Buckingham’s tax liability by £10,599.
  • On review, in November 2020, HMRC concluded that they had been out of time to open an enquiry under s.9A, as the enquiry window closed on 19 September 2020. The closure notice was withdrawn.
  • In December 2021, HMRC issued a Discovery assessment which reflected the position of the earlier closure notice, with a $29.50/$74.25 income/capital split.
  • HMRC’s statutory review decision, dated 30 March 2022, stated that the whole of the Special Dividend was in fact income: there was no capital element. 
    • The December 2021 discovery assessment was varied to increase the tax due by £26,267.

Mr Buckingham Appealed to the First Tier Tribunal (FTT), which found that:

  • The decision to cancel the enquiry closure notice was correct: the purported s.9A enquiry was out of time.
  • HMRC’s December 2021 discovery assessment was valid.
  • The quantum of HMRC’s discovery assessment was correct: $29.50 of the Special Dividend was taxable as an income distribution under UK law.
    • Whether the payment was of an income or capital nature was a question of fact, considering the legal mechanism under which it was paid. This was to be determined by considering the characterisation of the payment under the law of the relevant territory.
    • The evidence available supported a $29.50/$74.25 income/capital split under Delaware law.
  • HMRC's March 2022 review decision, which sought to charge the whole amount as income, was out of time.
    • Where a taxpayer has requested a statutory review, HMRC are required to issue a review decision within 45 days, or such other period as may be agreed.
    • HMRC did not contact Mr Buckingham until day 46 and stated that it would be assumed he had agreed to an extension unless he objected.
    • The FTT concluded that an extension has to be agreed upon before the end of the 45 day period. In addition, there had to be a positive agreement between the parties. HMRC could not rely on an appellant’s silence.
  • As the statutory review decision issued by HMRC in March 2022 was out of time, it was displaced by a deemed decision that the discovery assessment with a $29.50/$74.25 income/capital split was upheld.

The FTT therefore confirmed the December 2021 assessment.


HMRC's process was heavily criticised by the FTT in this case:

  • The officer who reviewed the December 2021 discovery assessment did not consider all the steps taken by the assessing officer when arriving at his decision, as is required by statute.
  • The reviewing officer failed to take into account IRS forms which confirmed the income/capital split and had not looked at the relevant note in KDP’s accounts which explained the merger.
  • HMRC's review decision said that in KDP’s annual report, the Special Dividend “appears to be described as a straightforward dividend”. The FTT was unable to locate any such description in KDP's annual report and the reviewing officer was also unable to find any such reference when asked.  
  • The FTT observed that HMRC’s case was inconsistent with the guidance set out in their own manuals. The relevant manual pages had not been referred to in the reviewing officer’s decision, or in HMRC’s submissions to the FTT, despite the officer who raised the original discovery assessment having identified the relevant manual pages when making his assessment.

Useful guides on this topic

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Offshore Income Tax Toolkit
This toolkit provides an outline of the tax issues for UK resident individuals with offshore income and investments.

Foreign income and residency pages: FAQs
How do you complete the foreign and residency pages of the Self Assessment return?

Dividend tax (subscriber guide)
This practical tax guide explains how dividends are taxed on or after 6 April 2016. It includes HMRC's own examples, more detailed examples, including an Owner Managed Business (OMB) section together with tax planning tips.

External link

John Buckingham v HMRC [2023] TC08782

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